Mavericks Riding the Wave of Electic Rate Increases

This time of year in California the ocean currents and weather set up patterns of very big waves beloved by surfers from around the world. It is tricky to know when the Mavericks surfing competition will take place so airplane tickets and surf boards are ready as enthusiasts watch the California weather reports. Give them the signal and they descend on the Central California coast.

For California ratepayers 2010 brings a kind of Mavericks competition with energy bills as the era of rate freezes closes with a decision in December 2009 approving electricity rate increases for all classes of customers of PG&E including Tier 1 “baseline” customers which had been frozen since the early days of wholesale power competition in the 1990’s for PG&E and SCE customers.

The energy mavericks have been the upper tier ratepayers who have the misfortune of living on the hot side of the mountains or in the desert or the great Central Valley where gas heat isn’t a big problem but summer air conditioning is a must. These Mavericks have borne the brunt of frozen rates since the revenue requirement from the frozen Tier 1 baseline customers was pushed up the user curve and added to already higher rates.

How High Will Electricity Rates Go?

I wrote recently about the surprise electricity customers in the Central Valley got when they opened their electricity bills. The bills reflected the summer A/C period so they were high, but unfortunately smart meters had been installed about the same time and there was some good publicity sought by utility and politicians over the smart meters bringing the promise of a more efficient energy future.

Killing the Utility Messenger Won’t Solve the Problem

That protest of rates was BEFORE this latest rate increase kicked in for PG&E and a similar one for Southern California Edison (SCE). Temperatures outside have cooled down, but inside ratepayer are slowly steaming. Their immediate focus is the utilities that are sending them the bills. But PG&E, SCE and Sempra are regulated and they charge the rates that the CPUC tells them to charge—no more and no less.

PG&E’s 2010 rate structure looks like this:

2009 Rates ¢/kwh

2010 Rates¢/kwh

Tier 1 Baseline

11.5

11.9

Tier 2 up to 130%

13.1

13.5

Tier 3 up to 200%

26.1

27.6

Tier 4 up to 300%

38.1

40.6

Tier 5 over 300%

44.3

47.4

California has a tiered rate structure of inclining blocks meaning the more energy you use the higher the rate. With the rate increase approved by the CPUC average rates will go up 3%. But average is the politicians’ way of spinning the news about rates. For Tier 1 baseline customers this means their rates will rise from 11.5 cents per kilowatt hour to 11.9 cents—high by national averages but a good deal in California.

But for the Tier 5 customers rates go up from 44.3 cents per kilowatt hour to 47.4 cent. OUCH! This may be good energy efficiency inducing behavior and it certainly has worked, but it only portends the rate increases to come when the full costs of renewable energy and smart meters and other demand side programs are factored into rates over the next few years.

Calculating the impact on your electricity bill from a CPUC rate change is a little like doing your Federal Income Tax with its own Alternative Minimum Tax equivalent in the tiered rate structure for tiers 3, 4 or 5. You need a lot of time and a good calculator. If you want to see for yourself go to the link below for a detailed explanation that is guaranteed to put you to sleep before you get to the answer.[1]

“Nothing concentrates the mind so well as the near term prospect of a hanging,” said Mark Twain.

The next wave of California Mavericks will not be surfers but waves of ratepayers heading to Sacramento looking for someone to hang over the looming cost of living into the political correctness that is driving energy policy in the Golden State. It sounds great! It makes great headlines! We love to be green and clean and at the cutting edge of technology. But being at the bleeding edge of policy as well as technology often costs more—much more. But add these looming rate increases to an economy with 10% unemployment, huge budget deficits, and surly voters and you have a volatile cocktail at the next election for any incumbent.

This wave of rate increases will be like the Mavericks surfing contest which brings out dare devils to ride the waves. But in this case it will take deeper pockets and a better economy to be able to afford our energy future.

“How do you turn the world’s 6th largest economy into the 15th largest?” as the old Sacramento joke goes. ” You make it subject to California regulation.”

Or in an economy deeply under water, Californians might decide move to Texas or Iowa where taxes are low, baseload generation moderates rates, wind energy is plentiful and the rates are not 11.9 cents per kilowatt hour let alone 47.4 cents. As an added bonus—in Texas there is no income tax!